By the end of this section, you will be able to:
- Describe changes inaugurated with the end of the Cold War.
- Explain key tenets of modernization theory.
- Cite a counterargument to modernization theory.
From its beginning in the late 19th century until the end of the Cold War in 1989, international political economy was almost exclusively focused on the world’s international financial powers—liberal democracies in Western European countries and the United States. The majority of the research and discussions in the field did not include countries in regions that had different political and economic systems. Even when these other countries participated in international relations, as was the case in the Bretton Woods conference, they were considered mere spectators. The preferences of Western financial powers dominated the agenda.41
During the Cold War, economic transactions between the East and the West were very rare. Western liberal democracies interacted among themselves, and Eastern socialist republics did the same. The majority of international trade took place between the United States and European countries. However, the end of the Cold War highlighted the economic and political issues countries in other regions of the world, such as formerly communist and Latin American countries, were facing. With the end of the Cold War, the focus of IPE shifted from an exclusive interest in developed Western nations to promoting development across developing countries in different regions. Since the late 1940s, modernization theorists had been searching for ways to bring economic growth and democracy to developing societies.
Modernization theorist Seymour Martin Lipset was one of the first to propose a link between economic development and democracy. He argued that improved wealth and education levels would create the right conditions for the establishment of democratic institutions.42 Once people with low socioeconomic status are given access to education, Lipset contended, they become less committed to their existing ideologies and less isolated from people of other socioeconomic statuses. As these groups become more educated and politically active, they become part of the middle class, and as the middle class increases, it pushes for democratic institutions.
In general, the key argument of modernization theory is that economic growth promotes structural changes in society that lead to increased political representation and, eventually, to the establishment of democratic institutions. Nevertheless, even though most developed countries are democracies, it is difficult to establish a causal mechanism, or a link, between economic growth and democratic institutions.
UCLA emeritus professor Barbara Geddes, a political scientist who has examined developing societies for over 20 years, contends that modernization is the most empirically supported hypothesis about the suitable conditions for democratization.43 Similarly, University of Chicago professor James A. Robinson has found statistical evidence indicating that economic development is highly correlated with democratization, even though the exact mechanism by which economic growth spurs democracy has not yet been uncovered.44
Why Does Democracy Matter for Development?
At the Annual Democracy Forum 2014 in Gaborone, Botswana, Devex Associate Editor Richard Jones asked experts and high-level officials why democracy matters for development.
New York University professor Adam Przeworski and Fundação Getúlio Vargas professor Fernando Limongi, two other prominent modernization scholars, argue that the impact of economic development in a society is so strong that once a country reaches a certain threshold of growth, a democratic regime will always survive. These scholars offer a metaphor to explain this relationship, suggesting that if modernization is a long walk, democracy is only the final step. In their empirical analyses, they find that transitions to democracy occur independently of the level of economic development (or high per capita income levels); however, once a transition happens, countries with higher levels of economic development tend to remain democratic.45
Considering the difficulty of finding the causal mechanism between economic development and democracy, MIT professor Daron Acemoglu and colleagues have reevaluated the modernization hypothesis. They find that most studies that claim to have found a connection between economic development and democracy fail to account for relevant variables. They argue that events during critical historical moments lead to divergent economic and political outcomes—either promoting economic development and democracy or leading to poverty and authoritarianism. Thus, these scholars believe that these critical historical moments are an underlying cause of economic development and democracy.46
The core debate in modernization theory has not been solved. While developing countries, with the support of international institutions such as the IMF, World Bank, and WTO, continue to pursue economic development, given the unwanted consequences of the market economy, the focus has shifted from development to sustainable development.